GAC Group announced its 3Q20 results. In the first three quarters of 2020, top-line achieved RMB43.2bn, an increase of 0.3% YoY while NP was RMB5.0bn，a decrease of 21% YoY. In 3Q20, top-line was RMB17.5bn, an increase of 19% YoY while NP was RMB2.7bn, an increase of 90% YoY. 3Q20 performance beat market estimation. We raise our TP to HK$12.1 (based on 15.0x 2021E P/E) with an upside of 52.8% from initial TP HK$10.0 (based on initial 16.0x average 2020E/21E P/E). Reiterate BUY.
- In 3Q20, GAC achieved total sales of 98,860 units, an increase of 10% YoY. Unit revenue increased by 9% YoY, which led to a 19% YoY growth in top-line. GPM was 5.2%, down 0.8ppt YoY/1.5ppt QoQ. Exp ratio achieved a YoY decline thanks to strong cost control measures (S&D ratio -1.3ppt YoY, Admin ratio -1.5ppt YoY, R&D ratio -1.2ppt YoY). Due to top-line growth and expense saving, 3Q20 core profit (loss) narrowed by 13% YoY. Benefiting from the rapid sales growth of GAC Honda (+29% YoY) and GAC Toyota (+20% YoY) in 3Q20, investment income from JVs and associates in 3Q20 achieved RMB3.4bn, an increase of 35% YoY. We expect that GAC Group's sales and NP in the 4Q20E will continue to deliver rapid growth.
- Even though GACM is undergoing a 3-year transition period, sales volume has begun to recover after its new flagship model GS4 rollout at the end of 2019. Especially GS4 has achieved a monthly sales volume more than 10K units for the last five consecutive months. We expect that the launch of GS3 Power will continue to drive the recovery of GACM. MPV series (M6 and M8) have earned good market awareness, with an increase of 36%YoY in Sep. The new model pipeline includes a new A+ sports sedan and the brand new GS8 model in 2021E. We believe GACM will bottom out as intelligent technologies (AGIDO 3.0) are gradually installed in its new models. We expect GAC Trumpchi to achieve a 6% sales growth in 4Q20E.
- We raise our bottom-line forecast to RMB5.9bn in 2020E to reflect the strong 3Q20 result. Our revised NP forecast suggests that GWM’s bottom-line will grow 191% YoY in 4Q20E. At the same time, we revised up our NP forecast to RMB7.3bn in 2021E to reflect a more positive forecast on GACM. We raise our TP to HK$12.1 (based on 15.0x 2021E P/E) with an upside of 52.8% from initial TP HK$10.0 (based on initial 16.0x average 2020E/21E P/E). Reiterate BUY.
